Lifetime investment and consumption with recursive preferences and small transaction costs
Yaroslav Melnyk
SFI, EPFL, Quartier UNIL-Dorigny, Lausanne, Switzerland
Search for more papers by this authorCorresponding Author
Johannes Muhle-Karbe
Department of Mathematics, Imperial College London, London, UK
Correspondence
Johannes Muhle-Karbe, Department of Mathematics, Imperial College London, South Kensington Campus, London SW7 2AZ, UK.
Email: j.muhle-karbe@imperial.ac.uk
Search for more papers by this authorFrank Thomas Seifried
Department of Mathematics, University of Trier, Trier, Germany
Search for more papers by this authorYaroslav Melnyk
SFI, EPFL, Quartier UNIL-Dorigny, Lausanne, Switzerland
Search for more papers by this authorCorresponding Author
Johannes Muhle-Karbe
Department of Mathematics, Imperial College London, London, UK
Correspondence
Johannes Muhle-Karbe, Department of Mathematics, Imperial College London, South Kensington Campus, London SW7 2AZ, UK.
Email: j.muhle-karbe@imperial.ac.uk
Search for more papers by this authorFrank Thomas Seifried
Department of Mathematics, University of Trier, Trier, Germany
Search for more papers by this authorFunding information:
German Academic Exchange Service (DAAD) and the European Research Council under the European Union's Seventh Framework Programme (FP/2007-2013)/ERC Grant Agreement n. 307465-POLYTE, and Deutsche Forschungsgemeinschaft within the Research Training Group 2126; CFM-Imperial Institute of Quantitative Finance.
Abstract
We investigate the effects of small proportional transaction costs on lifetime consumption and portfolio choice. The extant literature has focused on agents with additive utilities. Here, we extend this analysis to the archetype of nonadditive preferences: the isoelastic recursive utilities proposed by Epstein and Zin.
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